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Although there are plenty of signs that the German model of corporate governance is indeed forced into a transition to a more capital market-oriented one, the remnants of the old modus operandi persist. In portraying the traditional legal foundations of German corporate governance, the present chapter first explores how such archetypal internal structures as the dual board system, mandatory labour codetermination and the specific legal regime for groups of companies are embedded in the fundamental structure of German corporate law.

It then outlines some of the issues that define the ongoing transition process. The basic general thrust of this part is that the traditional corporate governance system, which has long been dominated by a focus on the legal rules determining the inner structures of the corporation, is more and more integrating new elements of an emerging body of capital market laws leaving German stock corporations under the governance of a non-uniform set of rules. Recent developments such as the German takeover law and the German Corporate Governance Code will further strengthen capital market orientation, but the final outcome of this process of modernisation cannot be assessed clearly yet.

A firm’s creditors have a dual role; under ordinary circumstances, they are no more than contractual counterparties. However, if the firm defaults on payment obligations, its creditors become entitled to seize and sell its assets and they become, in a meaningful sense, the owners of the firm’s assets. This dual role means that creditors may experience different agency problems at different points in time, and their contingent ownership will cast a shadow over how relations among participants in the firm are conducted, even while it is financially healthy. Consequently, every corporate law includes some provisions protecting corporate creditors. This chapter focuses on legal strategies specifically directed at creditors of corporate debtors, commonly justified as responding to particular problems stemming from the partitioning of corporate assets. This chapter considers the way in which the features of the corporate form give rise to such agency problems, and the legal strategies employed by major jurisdictions to address them.

This chapter first discusses the protection of creditors’ interests. It then covers the value of the legal capital doctrine; the development and maintenance of the capital regime in the UK; the reduction of capital under statutory procedures; the reduction of capital under the court approval procedure; the reduction of capital under the solvency statement procedure; and the exceptional reduction of capital procedures: the reduction of capital following a redenomination of shares, the reduction of capital pursuant to an order of the court, and the reduction of capital in respect of forfeited or acquired shares.